MNI POLICY: Evans At Ease With Prices Outlook, Fed Rate Hikes

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Bank of Chicago President Charles Evans,

until recently seen as a dove, on Friday called for higher interest rates in

light of strong growth, low unemployment, and inflation approaching the Fed's 2%

target.

     Noting that he is "more comfortable with the inflation outlook today than I

have been for the past several years," Evans said it was time for the Fed to

"return to the conventional monetary policymaking of yesteryear," namely,

"gradual adjustments in interest rates to meet our mandated objectives of

maximum employment and 2% inflation." 

     The Federal Open Market Committee's projection of a "mildly restrictive"

policy stance in 2020 -- setting rates slightly higher than what it believes to

be neutral -- is "consistent with some moderation in growth and a gradual return

of employment to its longer-run sustainable level," Evans said in remarks

prepared for the Northeast Indiana Regional Economic Forum in Fort Wayne, Ind. 

     His comments come on the heels of those of Fed Governor Lael Brainard this

week arguing for lifting rates in the near term above the Fed's projection of

their longer run neutral value. Like Brainard, Evans previously advocated for a

slower pace of rate increases but has shifted his views in the wake of fiscal

stimulus. 

     Evans does not vote on rates on the FOMC this year but dissented against

last December's rate hike, citing concerns over inflation. Then Congress pushed

through $1.5 trillion in tax cuts and struck a deal with President Donald Trump

to boost spending by $300 billion over two years. Now GDP growth has picked up

to around 3%, the unemployment rate has dipped to 3.9% and core inflation has

been running close to 2%. 

     Evans said Friday he expects unemployment to fall to around 3.5% and

inflation to rise a bit more over the next few years. Inflation expectations and

wage growth will likely firm up as well, he added. 

     Risks on either side of his outlook are balanced, he said, though the Fed

may need to tighten "somewhat further" if the economy overheats and inflation

rises "unacceptably high." On the other hand, uncertainty over the international

trade situation could slow the economy and call for a shallower policy path. 

     "My economic outlook is generally in line with those of my colleagues on

the FOMC," Evans said. "In other words, we are more or less singing the same

tune." 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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